How Does a Death in the Family Affect My Taxes?

Losing a family member is never easy. If someone in your family—such as your spouse, your child, or other dependent—dies, you’ll need to consider the tax implications. To better understand the potential tax implications of losing a family member, we consulted H&R Block®. Have you lost a loved one in the past year? Keep reading to learn some of the ways your family’s loss could affect your taxes.

Filing a Decedent’s Income Tax Return

If someone in your family—such as your spouse, your child, or other dependent—dies, the Internal Revenue Service (IRS) income tax return filing requirements still apply to the deceased taxpayer in the year of death. According to the IRS, the person in charge of the estate (the executor, administrator, or spouse) is responsible for filing the decedent’s final income tax return.

Filing Deadline. The decedent’s final income tax return is due by the filing deadline for the tax year in which he or she died. For example, tax returns for people who died in 2012 are due on or before April 15, 2013.

Death of a Spouse. If your spouse dies, as the surviving spouse, you may be able to file your tax return for the year of death using the married filing joint status. For the two years following the year the spouse died, a surviving spouse may be able to file as a qualifying widow/widower. You are a qualifying widow/widower if you were entitled to file a joint return with your deceased spouse for the year of death, you have a dependent son, daughter, stepson, or stepdaughter, you have not remarried, and you provide more than half the cost of maintaining a home for the dependent child who lives with you for the entire tax year, following the year in which your spouse died. If you do not qualify for this filing status, you may qualify to file using the head of household filing status. You can learn more about the rules for determining your filing status following the death of your spouse in IRS Publication 17: Your Federal Income Tax.

In certain circumstances, the decedent may not be legally required to file a tax return, but according to H&R Block, it may be wise to file a return to get a refund of any taxes that were withheld.

Inheriting an Individual Retirement Arrangement (IRA)

Often, early withdrawals (those made before turning age 59½) from retirement plans such as individual retirement arrangements (IRAs) or 401(k) plans result in tax penalties. But if the IRA owner dies while there’s still money in the account, there are exceptions.

Death and the Traditional IRA. If you inherit an IRA, you are called a beneficiary. A beneficiary can be any person or entity the owner chooses to receive the benefits of the IRA after he or she dies.

According to H&R Block, in most cases, if an IRA owner dies and you inherit his or her IRA, you will not be subject to an early-withdrawal penalty on distributions from the IRA. You would, however be required to pay tax on distributions if the IRA owner would have paid tax on those distributions—even though the funds are inherited.

According to the IRS, if a Roth IRA owner dies, the same distribution rules that apply to traditional IRAs apply to Roth IRAs. If you inherit a Roth IRA from your spouse, you can treat the account as your own. However, if you inherit a Roth IRA and you are not the deceased’s spouse, generally, the entire interest must be distributed by the end of the fifth calendar year after the year of the owner’s death unless the interest is payable to you, as the designated beneficiary, in an annuity over your life expectancy. To learn when you can withdraw or use inherited Roth IRA assets, read IRS Publication 590: Individual Retirement Arrangements (IRAs).

Remember that every situation is unique. If you’ve lost a family member and want to learn the tax implications, consult the IRS website. You can also learn more on H&R Block’s website.